Thursday, 7 April 2011

Reforming electricity market 'matter of urgency' to reduce bills

Canberra Times
30 March 2011, Page: 4

Australia must urgently reform its electricity market and infrastructure to curb rising prices driven by demand for peak power, federal climate change adviser Professor Ross Garnaut says. "It is peak rather than total demand that drives most of the need for [electricity] network investment", Professor Garnaut said in the final paper of his updated climate change review, published yesterday. He said unlike other developed countries, Australia had made "little effort to discourage peak usage of power through variable pricing, smart meters and smart grids".

Professor Garnaut called for urgent reforms to the National Electricity Market Management Company which covers Queensland, NSW, Victoria, South Australia, Tasmania and the ACT to remove barriers to energy efficiency and smaller scale electricity distribution systems. "In some ways it is the most advanced electricity market in the world", he said. "But these strengths persist alongside a few weaknesses that are at once significant in their effects on the price of electricity, on energy security and the capacity to adjust to the imperative to reduce emissions".

Professor Garnaut said further reform of the National Electricity Market Management Company was "a matter of urgency, since it would affect adjustment to a carbon price and the movement to a low emissions economy". Electricity network costs had risen dramatically in the past four years and the high cost of investment required for electricity networks was "the single largest cause of recent electricity price rises". Professor Garnaut said the cost of new transmission networks was forecast to top $7 billion over the next five years, with $32 billion required for new power stations. This was an 84% increase for transmissions and a 54% increase for energy distribution.

Climate Institute deputy chief executive Erwin Jackson said Professor Garnaut's update helped to "set the record straight" on factors currently driving an increase in Australia's electricity prices. "A massive investment in network infrastructure, including poles and wires, which Gamma puts at $39 billion, but others put at $46 billion between 2010 and 2015, accounts for 68% of the current total price increase", Mr Jackson said.

Professor Garnaut has also warned the impact of Australia's resources boom on coal and gas prices, as well as construction costs, will substantially increase electricity costs. He said the introduction of a carbon price would also lower profitability of brown coal electricity because of its emissions intensity. But industry analysts suggested there was evidence some brown coal generators were already "in precarious financial positions even before the introduction of a carbon price".

Professor Garnaut said over the next five years, an estimated $9.4 billion in debt on electricity generation assets would need to be refinanced. He has also suggested the creation of a new energy security council to prevent instability in the energy sector following the introduction of a carbon price next year.